Investors moved back into stocks on hopes that a special election in Massachusetts will take away power from Senate Democrats and make it harder for President Barack Obama to make changes to health care.
The vote Tuesday to fill the seat of late Sen. Edward M. Kennedy could shift power in the Senate if Republican Scott Brown wins. That would give Republicans the 41 votes necessary to filibuster Democratic proposals, including the health care bill.
The prospect of a logjam in Washington over health care eased concerns that profits at companies like insurers and drug makers would suffer. Rising health stocks pulled the broader market higher.
The Dow Jones industrial average rose 100 points after falling 100 Friday. Broader indexes also rose and demand for the safety of government debt waned.
Meanwhile, Kraft Foods Inc.'s agreement to acquire Cadbury PLC for $18.9 billion boosted hopes that corporate dealmaking will continue to rebound. Investors see buyouts as a sign of confidence in the economy.
Technology stocks got a boost after a Credit Suisse analyst raised his rating on Ciena Corp., a maker of telecommunications equipment, predicting that revenue would exceed expectations.
The gains came after stocks fell Friday when JPMorgan Chase & Co.'s quarterly results fell short of expectations. U.S. markets were closed Monday for Martin Luther King Jr. Day.
Analysts said that beyond a possible shift in plans for health care, the week's earnings reports will help chart the market's course in the coming months as companies update their expectations for the economy.
The stock market has been climbing for 10 months on hopes that an easing recession would boost corporate profits. But lingering problems like high unemployment and a weak housing market have raised questions about whether the jump in stocks is premature.
"This is just a critical period when we get to see the litmus test of earnings and then guidance," said Philip S. Dow, managing director of equity strategy at RBC Wealth Management in Minneapolis.
In early afternoon trading, the Dow rose 103.46, or 1 percent, to 10,712.96. The broader Standard & Poor's 500 index rose 11.93, or 1.1 percent, to 1,147.96, and the Nasdaq composite index rose 27.51, or 1.2 percent, to 2,315.50.
Among health stocks, insurers Aetna Inc. rose $1.50, or 4.8 percent, to $32.86 and United Health Group Inc. rose $1.69, or 5 percent, to $35.44. Pharmaceutical company Pfizer Inc. rose 42 cents, or 2.2 percent, to $19.91.
Shares of Cadbury rose $2.94, or 5.7 percent, to $54.84. Kraft fell 52 cents, or 1.8 percent, to $29.06.
Ciena rose $1.18, or 10.2 percent, to $12.81.
Citigroup Inc. rose 11 cents, or 3.4 percent, to $3.53 after reporting a fourth-quarter loss of $7.6 billion. The bulk of the loss is due to expenses related to its repayment of $20 billion in government bailout money.
Earnings reports are due this week from Bank of America Corp., Wells Fargo & Co., Morgan Stanley and Goldman Sachs Group Inc.
Bond prices fell, pushing their yields slightly higher. The yield on the benchmark 10-year Treasury note rose to 3.70 percent from 3.68 percent late Friday.
The dollar mostly rose against other major currencies.
The gain in the dollar hit prices of commodities, which are priced in the greenback. When the dollar rises, it makes it more expensive for foreign buyers to acquire commodities.
Crude oil fell 26 cents to $77.74 per barrel on the New York Mercantile Exchange.
Two stocks rose for every one that fell at the New York Stock Exchange, where volume came to 489.1 million shares, compared with 763.4 million traded at the same point Friday. Volume was heavy Friday in part because of the expiration of options contracts.
The Russell 2000 index of smaller companies rose 7.91, or 1.2 percent, to 645.87.
Britain's FTSE 100 rose 0.3 percent, Germany's DAX index rose 1 percent, and France's CAC-40 rose 0.8 percent. Japan's Nikkei stock average fell 0.8 percent.
Augstums reported from Charlotte, N.C.
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